A Post-ECB Reminder On The 'State' Of Europe

September 22 is the date for the German Elections. All of Europe and the IMF are keeping their heads down, playing nice and saying very little until this date comes and goes. No one wants to upset the chances of Ms. Merkel's re-election. No one wants to upset the Bratwurst Cart.

Pouring forth from all of the nations on the Continent, like a Preacher with the "Good News," is the notion that Europe is over the recession, that every country is doing just fine and that all problems have been solved. This, in my opinion, could not be further from the truth. It is the spiel of the day and reality will be found in the footnotes of tomorrow as long as tomorrow is after September 22.

It is now publically admitted by many that Greece will need some additional funding. The number thrown around is about $14 billion. I invite any of you to examine the finances of Greece. Go to the Bank for International Settlements site. Do a little homework and you will see that this projection is far from accurate. The number is going to be somewhere around $80 billion dollars in my estimation and I am just not sure if all of the nations in Europe are going to go along with this. We may have reached a point where some countries say, "Enough."

"I have enough money to last me for the rest of my life. Unless I am forced to buy food."

-The Wizard

The IMF, under their charter, cannot fund without twelve months of financing being in place to pay back any loans. Of course the IMF has not had an accurate financial projection for Europe in years but no matter as even fantasy projections are becoming hard to justify. The IMF has asked for debt forgiveness from the EU or the ECB or both and Germany's cry has been unrelenting, "Verboten!!!" Consequently where will the new money come from? If Cyprus is a template or even a suggestion it may come from the depositors in the Greek banks. Over 100m Euros of course but it could certainly get down to this. "Anyone but the taxpayers" seems to be the rallying cry these days but it is going to have to be someone and all of the old jokes have been already told.

In Spain, Europe has promulgated their famous "Extend and Pretend" strategy. They did not want to lend money to Spain and hurt the credibility of the nation so they lent 40 billion Euros to the Spanish banks which is guaranteed by Spain but no matter. Contingent liabilities are not counted on the balance sheets of the sovereign nations in Europe and the rabbit still pops out of the hat along with the weasel.

Then the 3.6% debt ratio mandated for all of the EU was changed to 6.5% for Spain. One more "Extend and Pretend" play. The imminent problem though is that Spain will probably not even meet that number and is now in danger of being downgraded to junk. A quick pen to paper exercise given Spain's continuing financial problems on both sides of the balance sheet where revenues are declining as social costs, such as their contribution to Social services are inclining due to their massive unemployment leads me to the conclusion that the miss will be somewhere around 8.5%. Of course, Europe may next change the way we count so that 8.5% will now come in between 2.0% and 3.0% as Berlin unveils new chronological proof that Rome counted in just this fashion. Athens counts this way when convenient so why not the rest of Europe?

In America we have the taper on/taper off debate. Bond prices do very little but head South while yields and the cost of funding rises. The Equity markets may awake one day soon and notice the rise in yields but apparently no one has notified them yet. The stock market has also not been told yet about Syria, the downshift in corporate revenues and earnings or that Italy may soon fall apart as Berlusconi threatens to burn the Coliseum. Old Mother Hubbard just does not want to disturb the children and when the wolf comes by to blow down the houses the poor babies may be in for quite a shock.